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One of the things that entrepreneurs may be wondering is just how do you go about starting a business? Sure, you have an idea and you want to get your friends working on this idea, whether it’s a retail business, Internet startup, manufacturing company, etc., but are you verifying that you have all your bases covered? Here are some helpful tips – a Entrepreneurship 101, if you will – on what you can do to help start your business.
In a presentation given by the senior director of small business banking at CIBC, here are a few items that you would need to know when starting a business:
Research your market.
When you’re going to jump into a market and start a business, one of the most important things is to assess the barriers to entry and whether or not it makes sense to get involved. Not only that, you should survey the competitors in your prospective market to gauge whether or not you have formed a really solid competitive advantage. One possible option could be to do a search online and see what bloggers and the press are saying about your prospective industry and make sure that you’re keeping up with the latest trends so that you can properly prepare your business.
Consider your ownership structure.
There are several different types of ownership structures: sole proprietorship, partnerships, corporations and limited liability companies. Not all of these types are the same and vary according to tax and financial responsibility, along with many other differing principles.
With a sole proprietorship, Entrepreneur.com lists it as “the quickest and easiest way to set up a business operation.” It’s relatively low cost (aka “free”) and there aren’t any blanket prerequisites – of course you should check with each state’s business agency to find out the exact rules towards setting up this type of business. It should be noted that while this is the easiest form of business, there are some pitfalls – including liability. You are the sole owner and unless you are in a community property state in which your spouse is vested with a one-half interest, you alone have full control and responsibility for the operation.
There are two different types of partnerships: limited and general – each with their own specialties. A general partnership is similar to a sole proprietorship except that it’s with more than one owner. However, it is relatively easy to set up. Entrepreneur.com says that you should spell out in writing some key things in order for your partnership to be a sound one:
- The amount of capital each partner is expected to contribute up front;
- The rights and duties of the partners;
- The method for sharing profits and losses;
- The authorization for cash withdrawals and salaries,
- The methods for resolving disputes or taking in new partners; and
- The method for dissolving the partnership should dissolution become necessary.
In a limited partnership, you have the same advantages and disadvantages of a general partnership EXCEPT for one fundamental difference: the limited partner is protected by law because the limited partner’s legal liability in the business is generally limited to the amount of his or her investment. You’ll have that as long as the limited partner doesn’t play an active role in the business group.
A corporation is an artificially-created entity which remains separate from the individuals who are running the operation. With at least one person doing the incorporating, a corporation can be formed by simply filing an application for a charter with the state. While you may not be technically personally liable for the actions of your company, Entrepreneur.com states that you might even incur an additional tax burden as a result. But do the costs outweigh the benefits? Who knows…three possible motivations include unlimited life, transferability of shares, and the ability to raise investment capital.
Just why do people choose the limited liability corporations? It’s because of three reasons: they want to protect themselves from legal liability, a simplified “one time” tax on the owners is preferred to dealing with cumbersome corporate tax liability, and the entity cannot qualify for subchapter S status. In essence, it’s almost like the limited liability corporation, or LLC, is a hybrid of a corporation and a partnership – a best of both worlds?
More information about these company structures are available on any business website or you can read more from the Entrepreneur.com article – but remember that the above listings are not legal advice and that you should always consult with a qualified professional and/or lawyer before moving forward with any decision.
Set up your business plan.
After you figured out the company structure and have researched your market, the next step would be to look at creating a business plan. Simply having an idea isn’t enough. A business plan will help you establish a good course to take so that you have a sound idea on how to run the business. Basically it’s mapping out your business goals and objectives and putting your ideas for a business onto paper so that you have a record of it so you can also provide it to people who might want to invest in your business (e.g financial institutions, venture capitalists, etc.) The Small Business Administration of the United States government has a great section on their website about writing a business plan and also include samples that you can follow.
These are just some of the things that entrepreneurs should think about when beginning their own business. In the next phase, we’ll examine some of the other issues that all businesses will need to explore.
Disclaimer: The information posted in this blog is provided for informational purposes. Legal information is not the same as legal advice — the application of law to an individual’s specific circumstances. The information presented here is not to be construed as legal advice. Unintentional Entrepreneur and Network Solutions recommend that you consult an attorney if you want professional assurance that the information posted, and your interpretation of it, is appropriate to your particular business.
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